Indonesian Government Imposes Lower Palm Oil Export Levy
The Indonesian government, through the Minister of Finance, has again issued a regulation related to changes to the export levy for palm oil and its derivative products. The regulation is contained in the Minister of Finance Regulation Number 76/PMK.05/2021 concerning the Second Amendment to the Minister of Finance Regulation 57/2020 concerning Tariffs for Public Service Agency Funds for Palm Oil Plantation Fund Management Agency (BPDPKS). The new palm oil tariff export levy have been implemented on July 2, 2021.
This is the third time the Indonesian government has made changes to the export levy rate in the last two years. Previously, on June 1, 2020, the Minister of Finance issued the Minister of Finance Regulation No. 57/2020 with a palm oil (CPO) export levy of USD 55 per tonne for any price level or fixed rate.
In line with the upward trend in CPO’s global prices (CIF Rotterdam) in 2020, the Government of Indonesia has again adjusted the export levy tarriff as stipulated in the Minister of Finance Regulation No. 191/2020 which implemented on 10 December 2020. Based on this regulation, the levy imposed on each exportpalm oil is relatively high at around USD 55 – 255 per tonne in a price range of USD 670 – 995 per tonne of CPO.
Referring to the Minister of Finance Regulation No.76/2021, the export levy tarriff on palm oil will continue to be applied progressively following the product price. However, there are some differences when compared to the Minister of Finance Regulation No. 191/2020, namely the threshold (lower price) for the imposition of CPO export levies changed from USD 670 per ton to USD 750 per tonne.
If the CPO price is equal to or below USD 750 per ton, the export levy imposed is USD 55 per tonne. Furthermore, for every CPO price increase of USD 50, the export levy rate increases by USD 20 per tonne. The maximum CPO price is USD 1,000 or above, so the export levy imposed is USD 175 per tonne. It can be concluded that the CPO export levy imposed on producers/exporters in Minister of Finance Regulation No.76/2021 is lower than the previous tariff levy (Minister of Finance Regulation No. 191/2020).
In a press release, BPDPKS as the manager of the palm oil export levy funds, stated that the basis for considering this tariff adjustment was to increase the competitiveness of Indonesian palm oil products in the global market while still paying attention to the welfare of oil palm smallholders and the sustainability of the national palm oil industry development program (PSR and mandatory biodiesel).
This is because the lower export levy makes CPO export prices more competitive, thereby increasing the competitiveness of Indonesian CPO both with competitors such as Malaysian CPO and soft oil products in the importer’s market or in the global market. Increasing the competitiveness of Indonesian palm oil in the global market amid weakening demand from importing countries due to the pandemic and also the trend of rising palm oil prices is considered a strategic step to increase foreign exchange exports, which are used as capital for Indonesia’s economic recovery during the Covid pandemic, as well as increasing the balance of BPDPKS to run these programs.
The policy of reducing the export levy for palm oil received positive support from plantation companies. With the previously imposed tariffs, producers only get less than 65 percent of the global CPO price because the remaining 35 percent is the burden of export levies and duties and another tax (such as personal income tax) to be paid by them. This means that the lower palm oil export levy is expected to increase the net income of producers. Joko Supriyono, General Chairman of the Indonesian Palm Oil Association (IPOA/GAPKI) also said that the reduction in export levy tariffs would provide space for companies to invest or increase their production capacity so that they could absorb additional workers.
Meanwhile, in an interview with CNBC, Togar Sitanggang, as Deputy Chairperson III of IPOA (GAPKI), explained that the policy of reducing CPO export levies would not have a major effect, especially on the net income of oil palm plantation companies. The reason is that the issue of reducing the levy tariff has been spreading since last May and there has also been a market adjustment in which global CPO prices have decreased by around USD 200 per tonne. This means that the decrease in the levy tariff coupled with the downward trend in CPO prices will not have a major impact on the company’s net income.
The opposite opinion arose from the General Chairperson of APKASINDO, Gulat ME Manurung, who represented Indonesian oil palm farmers and expressed his objections if the policy of palm oil export levies was changed. The impact obtained by smallholders from the implementation of the previous export levy was the increasing in FFB’s price, which was on average of more than IDR 2000 per kilogram. The high price of FFB makes smallholders shop more so that it can drive and stimulate the regional economy.
In economic theory, high export levy is burden smallholders because this is transmitted through lower FFB prices, which has the potential to harm them. The economic benefits felt by oil palm smallholders as mentioned by Mr. Gulat ME Manurung are actually an implication of the development of the downstream palm oil industry, namely the biodiesel industry through the mandatory B30 policy, which is supported by funding from palm oil export levies.
The palm oil export levy in the Minister of Finance Regulation No.76/2021 is also considered to be on the right track to further develop the domestic palm oil downstream industry. This can be seen in the export levy tariffs for upstream products, which are higher than for downstream products. This tariff instrument is an attractive incentive for the downstream palm oil industry, so it is expected to be able to increase added value and create other larger multiplier effects (such as job-creation and income), as well as being a source of foreign exchange and additional balance for the development of a competitive, more advanced and more sustainable national palm industry in Indonesia in the future.
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